Finally, the trillion kwacha budget has been approved by Parliament and we are all happy now in anticipation that government business will now begin to move properly.
Unfortunately, this is just a budget. In other words, the budget is simply a wish list or dream or an expectation. The reality comes in the actual implementation of the budget. A budget is only a planning tool. The key is in ensuring that the budget is implemented fully but as most of us know from our own experiences, this is a very difficult task.
For the past few years, the tendency has been to applaud the budget and forget to scrutinise the reality in terms of how that budget was implemented. This is the area where our Members of Parliament (MPs) need to begin to spend a little more time. The road ahead, however, looks to be long and challenging for the country and its citizens. Already, scepticism over the government’s commitment to austerity and prudent fiscal management is growing among the population amid predictions that the strong fiscal tightening that the Minister of Finance prescribed will be politically difficult to implement.
It is also expected that if the economy continues on a downward path, the expected revenue figures will not be realised and hence the budget figures will only be on paper. Since January this year, the Malawi Revenue Authority has been collecting less revenue than the target. Unless something magical happens, it is likely that the revenue figures in the budget will not be realised.
Take for example the most recent economic report for 2014/2015 financial year, total revenues and grants were estimated at K641 billion. This projection included K530.7 billion domestic revenues and K110.3 billion grants. These were revised upwards at the mid-year budget review to K663.8 billion with domestic revenues rising to K482.8 billion and grants increasing to K123.9 billion. However, at the end of the year, the reality was that the total revenues and grants amounted only to K609.6 billion falling short of the revised estimates by K54.2 billion and tax revenue underperformed by K19.9 billion.
There are several reasons for this shortfall.
To begin with, one is not sure that the gross domestic product (GDP) growth targets set by the Finance ministers in our budget formulation are achievable. I am arguing for the umpteenth’s time that the GDP growth of 5.1 percent for the 2016/17 financial year is far beyond realistic. The last two years have seen a sharp slowdown of economic activity, accelerating inflation, rising public debt levels and financial vulnerabilities. It is, indeed, very doubtful that economic growth will rise to the predicted levels in 2016/17.
The only way the economy can resemble a bounce-back in 2016/17 is if the conduct of monetary policy will be directed to enhance efficiency in the banking industry in order to ensure cost-effective delivery of credit, and that the kwacha depreciation is abated. If the high interest rates, shortage of maize as well as the negative impact of inflation on consumer and business confidence are not addressed quickly and sufficiently, private domestic investment will be constrained, with negative implications for the country’s growth prospects and hence the revenue making the implementation of the trillion kwacha budget a far-fetched dream. Furthermore, if the budget has to be effective at delivering its outcomes, then one cannot disagree with the need for the government to have the commitment and discipline to implement measures to restore the country’s economic health. Dealing with corruption decisively is a key element to make the budget effective. The conviction of several Cashgate culprits is a good sign in terms of bringing back donor confidence in the government.
The nation needs to start manufacturing quickly. There is need to have a robust industrial policy in Malawi. Lack of such a policy has compelled Malawi, as a nation, to live virtually on imports. The increasing appetite for imports means that the demand for foreign currency, especially the US dollar is growing exponentially, putting pressure on the kwacha exchange rate. And with the value of the kwacha depreciating on a daily basis, domestic prices of imports keep on rising and fuelling inflation, with adverse implications for living conditions of Malawians with fixed incomes.
This budget implementation needs a strong public finance management system. The lessons from the past are that a weak public financial management is the seed of fiscal slippages and fiscal indiscipline observed in the country over the years through corruption and the now infamous Cashgate. For the budget to be effective in its implementation, there is need to allow public sector officials to manage it without undue political inference but, at the same time, hold them accountable; ensure timely provision of quality information; and eliminate waste and corruption in the use of public resources while ensuring that there is fiscal adjustment and measures to reform and strengthen public financial management. Re-establishing credibility, predictability and control over budget execution is paramount to a successful 2016/17 financial year.
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